Tax & National Insurance Guide 2019/2020 (updated January 2021) - Equity
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Tax & National Insurance Guide
2019/2020 (updated January 2021)
1. Introduction (p.1-7)
a) The effect of Covid-19
b) Making Tax Digital (MTD) update
c) IR35 – roll out of off-payroll arrangements
d) New tax guidance for the entertainment sector
e) Check Employment Status for Tax (CEST) Questionnaire
f) Impact of Brexit on tax and social security arrangements
2. Tax (p.8-32)
a) Registering as self-employed
b) Keeping Records
c) Completing the Tax Return
d) Foreign Taxation
e) Expenses
f) Tax Allowances and Taxable Bands
g) Payment of Tax
h) Losses
i) Tax Investigations and Disputes
j) Equity Pension Scheme (EPS) payments
k) Student loans
3. National Insurance Contributions (NICs) (p.32-40)
a) Class 2 NICs
b) Class 4 NICs
c) Other types of national insurance
d) Maximum NICs liability
e) National Insurance Credits
f) National Insurance Contributions Abroad
4. Contacts List (p.41-42)
1
Equity Tax and NIC Guide 2019/20 – updated January 20211. INTRODUCTION
This Guide is intended for those submitting tax returns for tax year 2019/20 and therefore
reflects the rates and tax and national insurance regulations applicable to that tax year.
a) The effect of COVID-19
At the time of writing (December 2020) the entire entertainment sector continues to be
affected by the global COVID-19 pandemic which has led to a very significant loss of work in
the industry as a whole. In the light of this the government has brought in tax measures to
assist those filing returns for 2019/20 and therefore owing tax and national insurance for that
year.
A number of support packages have been put into place which are administered by HMRC
e.g., the government’s Self-employed Income Support Scheme (SEISS). Information and
advice about the employment support packages, social security and other forms of financial
support available as a result of Covid-19 can be found in our Financial Support Guide which
can be found on the Equity website – for the current version go to
https://www.equity.org.uk/about/coronavirus-advice/available-support-a-quick-guide/
and click on the link to the Financial Support page.
Time to Pay arrangements: HMRC have set up a dedicated COVID-19 helpline to help those
in financial distress and with outstanding tax liabilities and may be able to agree a bespoke
Time to Pay arrangement. They are also waiving late payment penalties and interest where
businesses are experiencing difficulties in paying taxes due to COVID-19. For further
information and a helpline number see https://www.gov.uk/difficulties-paying-hmrc and
https://www.gov.uk/government/news/tax-helpline-to-support-businesses-affected-by-
coronavirus-COVID-19
Payments on account: On 20/03/20 the Chancellor announced that self-assessment
payments expected in July 2020 can be deferred until January 2021. This may assist self-
employed members paying tax on account to HMRC although deferring payments may not be
the best option and it is important to discuss the position with your accountant if you have
one. Deferment is not automatic, so we advise members to contact HMRC to request a
deferment via your gateway account or call the HMRC COVID-19 helpline on 0800 024 1222.
Note that if you have deferred your payments on account and are experiencing difficulty in
paying you can investigate setting up a Self-serve Time to Pay Scheme (see below).
New Self-Assessment Self-Serve Time To Pay Scheme: If you deferred paying your July 2020
Payment on Account, you will need to pay the deferred amount, in addition to any balancing
payment and first 2020/21 Payment on Account, by 31 January 2021. This may be a larger
payment than you usually pay in January. If you are unable to pay your Self-Assessment (SA)
bill in full by 31 January 2021, you can set up a Time to Pay payment plan of up to 12 months
online with HMRC via your Government Gateway Account. For more information, see
https://www.gov.uk/difficulties-paying-hmrc
2
Equity Tax and NIC Guide 2019/20 – updated January 2021Deferral of VAT payments: On 24 September 2020, the Chancellor announced that businesses
who deferred VAT due from 20 March to 30 June 2020 will now have the option to pay in
smaller payments over a longer period. Instead of paying the full amount by the end of March
2021 smaller, interest free payments can be made up to the end of March 2022. If you are
unable to make these payments, you may also be able to make a time to pay arrangement
with HMRC. For more information, see https://www.gov.uk/guidance/deferral-of-vat-
payments-due-to-coronavirus-covid-19
Tax Treatment of Self-Employed Income Support Scheme (SEISS): More information on the
SEISS scheme can be found in our Financial Support Guide [see current version at Equity - Tax
and Welfare ]. For the purposes of the tax return, please note that the SEISS grants count as
trading income and so should be included as part of your turnover. They will also count in the
computation of self-employed national insurance due. A specific box will be included on the
2020/21 return for the recording of SEISS grants received.
Interaction of SEISS with Social Security payments: For members claiming Universal Credit
or planning to do so in the near future, it is important to note that SEISS grants count as
earnings for UC purposes. Given that, it may be better to delay a claim until after you have
received a SEISS grant so that the grant is not taken into account in the first UC assessment
period. For more information on this see: https://www.equity.org.uk/about/coronavirus-
advice/available-support-a-quick-guide/
and click on the link to the Financial Support page.
Tax Treatment of other payments received during COVID
Payments from theatrical charities – we would expect these to be viewed as non-taxable by
HMRC. The general rule is that voluntary payments made to help with personal day to day
living expenses are not taxable whereas payments made expressly to assist you in maintaining
your business would be.
Payments from public bodies – emergency funding from Arts Council England or Creative
Scotland or similar bodies are likely to be taxable as they are made to assist your business and
so would be seen as trading receipts. But in view of the fact that there is still some level of
uncertainty around this at the time of writing, our current advice to members would be to
add a note in the additional information box to explain what the payment was and to say this
has been included on the assumption it is taxable. More information will be in the next edition
of this tax guide for those filing for tax year 2020/21.
COVID-19 Loan Schemes: the usual position for sole traders is that the loan would not count
as a taxable receipt and tax relief would be available on the loan interest. Those with personal
service companies should consult their accountants.
b) Making Tax Digital (MTD) update
We reported in the previous edition that the government had shelved plans to bring in Making
Tax Digital for income tax purposes. This would have included quarterly reporting of income
3
Equity Tax and NIC Guide 2019/20 – updated January 2021and expenses using approved software. At the time of writing (December 2020) plans to
introduce this have been shelved until 2023. Note that it is planned these rules will apply to
all those with an annual turnover exceeding just £10,000 per year. Equity continues to have
many concerns about these plans and we want to see the threshold level raised, a proper
impact assessment and some form of exemption for the entertainment industry because of
our member’s varied and unpredictable work patterns which will greatly complicate such
frequent reporting.
There will, however, be some members who may wish to investigate further the possibility of
digital reporting and it is possible to use the new system on a voluntary basis – for more
information on this see: https://www.gov.uk/government/collections/making-tax-digital-for-
income-tax
Bear in mind however that this may lead to an increase in accountancy costs as you would
need to be sending quarterly updates of income and expenses to HMRC.
Phase 2 of MTD for VAT purposes was due to commence in April 2020 but was postponed at
the last minute due to the pandemic crisis and is now expected to commence in April 2022.
This will involve filing VAT returns through the HMRC portal using the approved digital
transfer methods. Until then it will still be possible to copy and paste e.g. from Excel
spreadsheets. For more details see: https://www.gov.uk/government/publications/vat-
notice-70022-making-tax-digital-for-vat/vat-notice-70022-making-tax-digital-for-vat
Part 4.2.1 on Digital Links is of particular relevance.
c) IR35 – roll out of off-payroll arrangements
Another piece of legislation postponed to 2021 was the roll out of IR35 to the private sector.
IR35 refers to a Revenue briefing which appeared in 2000 to address cases of ‘disguised
employment’ i.e. those operating via personal service companies (PSCs) who were seen as
avoiding payment of tax and Class 1 national insurance through adopting a company structure
when they were in fact employees for tax purposes.
What this roll out will do is transfer the liability for assessing whether IR35 should apply from
the individual’s PSC, which has had the responsibility for making the assessment until now, to
the private sector engager where that engager is classed as a medium or large-sized company
(this is defined as meeting two of the following three criteria – having an annual turnover of
more than £10.2 million, a balance sheet total of more than £5.1 million and more than 50
employees).
From next year private engagers such as ITV in TV or the National Theatre in theatre will need
to make an assessment of the correct tax status of those they are engaging via personal
service companies. In the vast majority of cases where standard Equity contracts are involved
we believe this should result in a finding that IR35 should not apply as if the company were
removed the tax status of the individual would be one of self-employment i.e. they would not
be judged to be employees of the relevant engager e.g. the BBC.
4
Equity Tax and NIC Guide 2019/20 – updated January 2021Engagers contracting with those who have personal service companies will need to record a
Status Determination Statement (SDS) explaining how they have checked the correct tax
status of the artist. As stated, we would expect that Statement to confirm self-employment
in the vast majority of cases. We would also expect engagers to be using the newly agreed tax
guidance for the sector (see section below) in making that judgement and not relying upon
HMRC’s Check Employment Status for Tax questionnaire (CEST). This is because the CEST has
known deficiencies when assessing the status of performers because of the way certain
factors in the questionnaire are weighted which do not take into account the work patterns
in our industry. For more on the CEST see section below. If you find yourself being classed as
an employee for an engagement please discuss urgently with your accountant or let us
know by emailing alean@equity.org.uk and copying in helpline@equity.org.uk
Where the private sector engager is not medium or large-sized, it will remain the
responsibility of the member’s own PSC to make suitable status assessments using the IR35
rules and guidance and importantly the tax guidance specific to the entertainment sector (see
section below).
Note that IR35 has already been rolled out to the public sector (from April 2017) and so is
already being operated by engagers like the BBC.
The IR35 rules only apply if you are operating through a PSC. This is a complex area of tax
law and we are assuming that those members operating a PSC have sought specialist
accountancy help from an accountant familiar with the issues of the entertainment industry.
We maintain a list of such accountants which we are happy to send to members.
For more information on the roll out for IR35 see: April 2021 changes to off-payroll working
for intermediaries - GOV.UK (www.gov.uk)
d) New tax guidance for the entertainment sector
The new tax guidance for the entertainment sector has been agreed and this went live on 3 rd
September 2020. This is essentially a status tool setting out the rules for determining whether
different groups e.g. actors, stage managers, choreographers, should be classed as employed
or self-employed for tax purposes. It is important to note that this guidance helps with tax
status – status for employment rights purposes may differ e.g. many members are self-
employed for tax but ‘workers’ as defined under section 230 of the Employment Rights Act
1996 for employment rights purposes. With tax there are only two possible status positions
– employed and self-employed whereas in employment law you could be self-employed, a
worker or an employee.
The new guidance confirms the status quo which is that performers in general are self-
employed for tax purposes in the view of HMRC. The new guidance is the result of three years
of negotiations with Equity and the industry and it contains more detailed guidance on several
areas including the position of directors, designers and choreographers and role players. It
5
Equity Tax and NIC Guide 2019/20 – updated January 2021should also be used to make determinations of status under IR35 above but as already
emphasised IR35 rules only apply to those operating through PSCs.
For the main parts of the guidance, see the following links:
ESM4121 - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk)
(covers actors and other performers)
ESM4121A - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk)
(case study examples)
ESM4122 - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk)
(relevant caselaw)
ESM4124 - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk)
(covers stage management)
ESM4125 - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk)
(covers role players)
ESM4126 - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk)
(covers directors, designers and choreographers)
The awareness of the standard guidance varies with engagers and particularly with non-
standard contracts they may not even be aware that it exists. It is therefore always worth
members bringing it to their attention and stressing that this is the view of HMRC as well as
Equity’s view. As stated above, if you are experiencing problems around tax status discuss
with your accountant or contact us on alean@equity.org.uk with helpline@equity.org.uk
copied in.
e) Check Employment Status against Tax (CEST) Questionnaire
HMRC have put together a questionnaire to assist engagers and taxpayers in arriving at tax
status assessments. The questions look at the typical tax status factors and operates in a
multiple choice format – the latest version updated in January 2020 can be found here:
https://www.gov.uk/guidance/check-employment-status-for-tax
However, it is important for members to note that the CEST has a number of shortcomings
when it comes to assessing the status of performers. This is because it attributes importance
to factors like right of substitution and provision of equipment which are often indicative of
self-employment but not so in the entertainment industry where they are better regarded as
neutral factors in most cases. In addition, the CEST takes a very standardised approach to
issues of control which can give misleading outcomes and gives limited emphasis to the
pattern of work (not just the contract under consideration) which is important when looking
at a performer’s tax status. To that extent it is crucially important for members and engagers
to consider the specific guidance (ESM4121 and other sections as above) as the primary
6
Equity Tax and NIC Guide 2019/20 – updated January 2021guidance when considering tax status in our sector as the CEST in isolation may give a
misleading outcome.
f) Impact of Brexit on tax and social security arrangements
The exit of the United Kingdom from the EU from January 2021 will of course have
implications for many members in terms of their free movement to take up work within the
EU. So far as tax is concerned, the Double Taxation treaties in place with EU countries depend
on OECD treaties and so the rules about offsetting withholding tax paid abroad should
continue to apply (see Foreign Taxation below, page 12). We are checking to see if there are
any other significant tax changes likely to affect members.
The position is less certain with social security payments made in the EU – this will depend on
whether individual countries decide to apply the ‘detached worker’ rules – see update on this
below (National Insurance Contributions Abroad – page 38).
Please note: Whilst the material contained in this Guide is believed to be accurate, no responsibility for loss
occasioned to any person acting, or refraining from acting, as a result the material contained herein can be
accepted by Equity. The material contained in this Guide is believed to be accurate at the date of publication,
January 2020, but will be subject to change. All updated versions of the guide can be found on the Equity
website. See Equity - Tax and Welfare
7
Equity Tax and NIC Guide 2019/20 – updated January 20212. TAX
Most Equity members are taxed as self-employed earners. There are some exceptions to this
but for the vast majority of our members, self-employed categorisation will be appropriate.
Performers have historically been taxed as self-employed. Being self-employed for tax means
you are able to claim business expenses against your income.
The UK tax year begins on 6th April and ends on the following 5th April.
a) REGISTERING AS SELF-EMPLOYED
You can register for self-employment online or by phone.
1) To register online go to https://online.hmrc.gov.uk/shortforms/form/CWF1ST?dept-
name=CWF1&sub-dep. This link takes you to a structured email which you can
complete and send in online. Alternatively, go to the gov.uk website, enter Register
for Self-Assessment in the Search Box then follow the links to register as a sole trader.
2) To register by phone contact the Her Majesty’s Revenue & Customs (HMRC) Helpline
on 0300 200 3500.
When you register for self-employment, you will be registering for both self-employment tax
(collected though the self-assessment regime) and self-employment National Insurance Class
2/4 NICs (for more information on NICs see page 30 of this guide onwards).
You should register as soon as you commence your self-employment. It is the
commencement of self-employment activity that triggers the requirement to register, not
whether you earn over the Personal Allowance (see page 23) or make a profit or loss. This is
important as some members mistakenly believe that there is no obligation to register if you
are making low profits. You do not have to wait to register until you have paid self-employed
work – it is sufficient if you are seeking work and incurring expenses e.g. attending auditions.
However, there are circumstances where you may not have to register if your profits are
lower than £1,000 gross (before expenses) in the tax year – see Trading Allowance on page
23 for more information on this.
The latest you should register is by 5th October following the tax year in which you
commenced self-employed activity. For example, for tax year 2019/20, the latest you should
register is 5th October 2020. If you register late you may have to pay a penalty. Our advice is
to register as soon as you commence your self-employment so that you can claim the
expenses you incur against your taxable income and avoid any penalties.
When your first tax returns are due:
- If filing online: by 31st January following the tax year in which you registered for self-
8
Equity Tax and NIC Guide 2019/20 – updated January 2021employment. For example, if you commenced self-employment in tax year 2019/20,
you would need to file your first tax return by 31st January 2021.
- If completing a paper return: by 31st October following the tax year in which you
registered for self-employment. For example, if you commenced self-employment in
tax year 2019/20 you would need to file your first tax return by 31st October 2020.
If you fail to register as self-employed by the by 5th October following the tax year in which
you commenced self-employed activity, you will usually not incur a penalty as long as you
ensure that you have registered for self-employment and submitted a return by the relevant
tax return deadline.
Once you have registered as self-employed for tax, HMRC will set up a Gateway Account for
you and issue you with a pin number. This will enable you to access your digital tax records
and you will then receive your Unique Taxpayer Reference Number (UTR Number), which is
ten digits long. You will then be part of the Self-Assessment regime.
Once registered, you will be sent a letter by HMRC every April telling you to complete a tax
return. If you complete the tax return online, HMRC’s software calculates and notifies you
how much tax you owe immediately online. If you complete a paper tax return and return it
to HMRC by 31st October, HMRC will calculate the tax you owe and notify you of this by letter
in advance of the deadline for payment.
When you register as self-employed, your self-employed tax status will apply to your
performance work only. If you are also employed in PAYE employed earner work, for example
in a bar or restaurant, you will remain employed in this work; tax and NIC’s are usually
deducted from your wages, depending on how much you earn. It is therefore possible to be
both self-employed and employed at the same time, or have two separate self-employments
i.e. actor and teacher. Employments and self-employments are listed separately on the self-
assessment forms.
b) KEEPING RECORDS
Once you have registered as self-employed you are obliged to:
1) Keep records of all your income and expenditure so you can complete your tax return
And
2) Set money aside in order that you are able to pay tax and NIC when it is due.
It is a legal requirement that you keep records for at least five years after the normal filing
deadline of 31st January so you must be organised and thorough. For example, for a 2019-
2020 tax return filed on or before 31st January 2021, you must keep your records until 31st
January 2026. If a tax return was sent to you or filed very late, you may need to keep records
for longer.
In the event that you are investigated by HMRC, you will be asked to verify your income and
expenditure. In order that you are able to do so it is essential that you keep wage slips,
9
Equity Tax and NIC Guide 2019/20 – updated January 2021remittances, invoices, bank statements, etc. and all receipts relating to the expenses you
claim against tax. You may find it helpful to file receipts every month into separate envelopes
so that you are able to locate and produce receipts easily. A thorough filing system will also
assist you in completing the self-assessment return. It is not enough to keep scans or records
of the receipts – you will need the originals. If you have paid for things online e.g. via PayPal
you should keep a print out of the receipts for payment.
You will need to keep up-to-date and accurate records of your income and expenditure. You
may decide to use an electronic spreadsheet.
You should be able to identify the sums paid into your bank account, including gifts. It is
important to be able to differentiate earnings from other income if you are investigated by
HMRC. It is also advisable to keep a work diary to record information about your various jobs
i.e. period under contract, how much was paid, etc.
Keeping accurate records is particularly important in the case of “dual purpose” expenses
(see above) where you need to be able to differentiate very clearly between business
(allowable) expenditure and personal (non-allowable).
We advise members to have a look at HMRC’s booklet on record keeping - see
http://www.hmrc.gov.uk/record-keeping/index.htm. It is important that you are fully aware
of the records you are required to keep as failure to keep adequate records can result in a
penalty.
The HMRC have produced a webinar on the subject of record-keeping at
http://www.hmrc.gov.uk/webinars/self-employed.htm. At this page scroll down to the
section on Record Keeping.
Most Equity members are taxed as self-employed earners. There are some exceptions to this
but for the vast majority of our members, self-employed categorisation will be appropriate.
Performers have historically been taxed as self-employed. Being self-employed for tax means
you are able to claim business expenses and capital allowances against your income.
The UK tax year begins on 6th April and ends on the following 5th April.
c) COMPLETING THE TAX RETURN
For help completing your tax return and for general advice about self-assessment you may
wish to contact HMRC’s helpline on 0300 200 3500. However if your enquiry relates to an
issue to do with working in entertainment or being a performer, we would advise that you
contact Equity’s Tax and Welfare Rights helpline in the first instance - see Section 4 Contacts
below, p.41.
If you have a question about how HMRC’s online self-assessment system works or a technical
issue when completing your online tax return, we recommend you contact HMRC’s Online
Services Helpdesk on 0300 200 3600.
10
Equity Tax and NIC Guide 2019/20 – updated January 2021As noted above, once registered you will be sent a tax return to complete each year or a letter
telling you to complete a tax return. You complete a tax return so that HMRC can work out
how much tax and national insurance you are liable to pay. You can complete a paper tax
return or file your tax return online. Once registered, you must file a return no matter how
much you earn.
You do not need to engage an accountant to complete the tax return. Self-assessment has
been designed to be as straightforward as possible so that individuals can do it themselves.
However, you may wish to engage the services of an accountant and, if you do, it is advisable
to get one who has experience of the accountancy needs of people working in the
entertainment industry.
Equity provides a list of accountants that is available to members on request or you can find
this on our website in the members’ area of the Equity website under Tax and Welfare.
Paper tax return
The paper tax return is made up of different sets of Pages to reflect your individual
circumstances. You will fill out a general set of Pages (SA 100) and a set of Self-Employment
Pages (SA 103). You may also have to complete any other sets of pages that are relevant to
you, such as the Employment Pages (SA 102) or Foreign Pages (SA 106).
It is on the self-employment pages that you declare your self-employed income and
expenditure from the entertainment industry. There are two sets of self-employed pages:
• SA103S – Self-employment (short) if your turnover is below £85,000 (2019/2020)
• SA103F – Self-employment (full) if your turnover is above £85,000 (2019/2020)
The short pages are much simpler to complete as they are designed for taxpayers who have
straightforward tax affairs. Some Equity members who have complex tax and national
insurance affairs may have to complete the full self-employment pages even though their
turnover is below £85,000.
If you also work as an employee (i.e. you have a separate employment) you will need to
complete the Employment Pages (SA102), on which you will declare your employment
income and tax paid based on the P45 or P60 as supplied by your employer.
Online tax return
The online tax return is made up of different sets of Sections. There is no short or full version
of the self-employment pages. Instead the online system feeds you the sections you need to
complete, including the Employment and Foreign pages.
11
Equity Tax and NIC Guide 2019/20 – updated January 2021Cash basis and Accruals basis
Most small unincorporated businesses i.e. sole traders, use the cash basis under which you
record income and expenses in the accounting period in which payment is actually received
or expenditure incurred. This is because it is simpler to use from an accounting perspective
and does not involve having to make more complex adjustments. In order to use the cash
basis you need to elect to do so in the tax return, and your turnover for the year needs to be
less than the VAT registration threshold (£85,000 for 2019/2020).
Under the accruals method you look at income arising when it is earned not when it is paid
and expenses are recorded when the expense arises. So, for example, a payment of insurance
is allocated in the accounts to the period the insurance covers or a payment of electricity may
need to be estimated. If you are using the accruals method we strongly advise that you use
an accountant as depending on the transaction involved it can be complicated to make the
necessary adjustments.
The following link gives a clear explanation of the cash basis:
https://www.gov.uk/simpler-income-tax-cash-basis/getting-started
Note: if your turnover is more than double the VAT threshold for the year (currently
£170,000), you must revert to using the Accruals Basis if you are using the Cash Basis.
We point out below the effect of using the cash basis in relation to expenses and capital
allowances and losses and it is important to note these when completing your return.
d) FOREIGN TAXATION
Foreign tax may involve very complex accounting issues, such as tax residency. We would
strongly advise that you seek specialist accountancy advice if you work abroad frequently.
Performers who work abroad are usually subject to a special regime of withholding tax which
applies to entertainers and sportsmen. These operate at various rates which may be more or
less than the standard UK basic income tax rate (currently 20%). This regime is contained in
various Double Taxation Treaties with other countries around the world and these typically
have a standard Article which allows the taxation of entertainers in the countries where they
work for performance work carried out in that country (except where you are operating
through an intermediary i.e. your own personal service company or have a permanent
establishment in that country). This is opposed to the usual rule that you are taxed in the
country where you are actually tax resident i.e. in this case the UK. For an example of the
standard Article see Article 17 in this link to the UK/France Double Taxation Treaty:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_
data/file/496672/france_dtc_-_in_force.pdf
If you work abroad and pay foreign tax, you will need to complete the Foreign Pages (paper
form SA106) or Foreign Section (online return). If you pay tax abroad and complete the
12
Equity Tax and NIC Guide 2019/20 – updated January 2021Foreign Pages/Section you may qualify for Double Taxation Relief against your UK tax liability
to take into account the tax you have paid abroad. In brief, Double Taxation Relief is available
when there is a Double Taxation Treaty in place between the UK and the country in question
– the relief enables you to offset your foreign tax liability against your UK tax liability for the
equivalent period and obtain a Foreign Tax Credit. If your payments straddle two different UK
tax years, then you would need to allocate these to the relevant UK tax year when completing
the returns. You may not be able to obtain full tax relief where the foreign tax payable exceeds
the equivalent UK rate.
Example
Peter worked in Germany for three months in tax year 2019/2020 on an entertainment
contract earning 5,000 euros. He was subject to German withholding tax at a rate of
30% and other deductions including German social security payments. He fills in the
SA106 Supplementary Pages in the tax return entering the German income and tax
paid converted into £ sterling. He also enters the gross income in the SA103 self-
employment pages as part of his gross turnover again converted into £ sterling and
records the expenses incurred there as well in £ sterling. This will mean that any
German tax paid will be offset against his UK tax liability - in this case as he paid 30%
in Germany he will owe no tax on this income in the UK although it will mean that 10%
is not recoverable. This assumes he is a basic rate taxpayer – if he is a higher rate
taxpayer he may still owe tax on that income in this country.
As per the example above you will need to convert the income, tax paid and expenses into £
sterling for the relevant periods when income was received or expenses were incurred.
HMRC’s exchange rate converter can be found at the following link:
https://www.gov.uk/government/collections/exchange-rates-for-customs-and-vat
If you work abroad you may also find yourself subject to the equivalent of national insurance
deductions – for further information on this and how to avoid them see page 36 but note that
the current position on this is still unclear at the time of writing (December 2020) due to
Brexit.
We would suggest that members operating through a Personal Service Company seek
professional advice if working abroad regularly to work out the most tax-efficient way of doing
so.
Alternatives to claiming under the Double Taxation Treaty
There may be circumstances where you may not be able to make use of the foreign tax credit
e.g. where your taxable earnings in the UK in that tax year are less than your tax-free personal
allowance meaning that no tax is due on your UK income. In those circumstances where it
would produce a tax saving you can deduct the foreign tax paid from the foreign income in
working out how much of the income is taxable in the UK.
13
Equity Tax and NIC Guide 2019/20 – updated January 2021For further information on this see the section headed Deduction Relief in the following link:
https://www.gov.uk/government/publications/calculating-foreign-tax-credit-relief-on-
income-hs263-self-assessment-helpsheet/relief-for-foreign-tax-paid-2020-hs263
Note that withholding tax paid on your foreign earnings cannot normally be treated as an
allowable business expense except in exceptional circumstances.
You may be able to get a refund of withholding tax paid abroad in some circumstances but
this will often involve filing a tax return in the country in question. We would recommend
getting specialist accountancy advice if you are planning to do that.
For further technical information about Double Taxation Relief you should refer to HMRC’s
Double Taxation Relief Manual available online at: https://www.gov.uk/hmrc-internal-
manuals/double-taxation-relief
IMPORTANT NOTE: Impact of Brexit – the Double Taxation treaties between the UK and
other countries are governed by OECD rules and so will remain in force after Brexit.
However, exemptions from EU national insurance payments may be affected (see p.38-40).
If you have paid foreign tax in a tax year you will need to complete the full self-employment
return (SA103 (F)) rather than the short version (SA103 (S)) if you are filing a paper (hard
copy) return.
e) EXPENSES
Equity has consistently campaigned for your right to be categorised as self-employed for tax
purposes. Being self-employed for tax enables you to claim allowable business expenses
against your gross earnings thereby reducing your taxable self-employed income. In some
cases, for example, where you have purchased essential equipment for the business, you may
be able to considerably reduce your tax bill through being able to operate as self-employed.
Many of our members incur substantial expenditure pursuing their self-employment and so
this is an essential element to claim.
Note: Turnover are profits before any deductions, net profits are your net profits after
deduction of allowable expenses, taxable profits your profits after any further adjustments
including losses brought forward.
So what can you claim as expenses against income?
The law says that expenses incurred wholly and exclusively for the purposes of the trade are
allowed against self-employment income (section 34, ITTOIA – Income Tax (Trading and Other
Income) Act, 2005). This means that reasonable expenditure incurred on items exclusively
related to your self-employment should be allowed by HMRC e.g. ballet shoes, advertising,
accountants’ fees, etc.
This is set out clearly in the tax legislation which states:
14
Equity Tax and NIC Guide 2019/20 – updated January 202134 Expenses not wholly and exclusively for trade and unconnected losses:
(1) In calculating the profits of a trade, no deduction is allowed for— (a) expenses not
incurred wholly and exclusively for the purposes of the trade, or (b) losses not
connected with or arising out of the trade
However, many items of expenditure may have a dual purpose - a business and
private/personal element or benefit i.e. haircuts, make up, phone bills, etc. As a general rule,
the business proportion of such items of dual purpose expenditure can be claimed against tax,
provided that it is possible to apportion a business element and it is reasonable to do so.
Again, the tax legislation makes clear that members can do this:
(2) If an expense is incurred for more than one purpose, this section does not prohibit
a deduction for any identifiable part or identifiable proportion of the expense which is
incurred wholly and exclusively for the purposes of the trade.
There are some exceptions to this general rule as determined by the courts, but generally a
fair business proportion can be claimed. You will need to be able to justify the business
element claimed if you are investigated by HMRC so you should claim a reasonable and
accurate amount. We comment further on “dual purpose” expenses below.
IMPORTANT NOTE: One practical suggestion for taxpayers who wish to claim expenses but
are concerned as to whether they are allowable would be to include them on the self-
assessment tax return and then make a disclosure in the “additional information” box
explaining the basis for the claim. It would then be for HMRC to challenge if they felt the
claim was inappropriate but the taxpayer would be protected from any potential penalty
charges in those circumstances.
Commonly claimed expenses
The following list outlines items of expenditure claimed by many of our members. It has not
been agreed by HMRC, but we have been advised that the following expenses could be
allowed against tax depending on the circumstances of the claim. However, it all depends on
the individual circumstances and facts and so this list is by no means definitive.
• Accountancy and other professional fees.
• Administrative costs including stationery, postage, photocopying and other office
costs.
• Advertising e.g. Spotlight and agency books.
• Agents’ and Managers’ fees and commission on same.
• Awards and bursaries * see note below
• CD’s, DVD’s, downloads, books, scripts, sheet music, etc.
• Clothing * see note below
• Cosmetic surgery * see note below
• Costume and props (including repair, laundry and cleaning).
15
Equity Tax and NIC Guide 2019/20 – updated January 2021• Equity subscriptions.
• Gym membership * see note below
• Insurance * see note below.
• Maintenance of instruments and insurance.
• Make-up and hairdressing which is clearly specific to work * see note below
• Motoring expenses * see note below
• Photographic sittings and reproduction.
• Professional publications e.g. The Stage, Broadcast, PCR, Radio Times.
• Research Costs
• Start-up costs * see note below.
• Telephone including landline, mobile phone and internet costs.
• Theatre and cinema tickets relevant to your self-employment.
• Travelling expenses for attending interviews and auditions * see note below.
• Travelling and subsistence on tour if supporting a permanent home * see note
below.
• Tuition and coaching for dancing, singing, speech, etc. *see note on Course Fees
below.
• Use of home as office * see note below.
• Website costs.
Private Expenditure (non-business related expenditure) such as normal household
expenditure is not allowable expenditure and you cannot claim it to reduce your taxable
income.
You may also be able to claim Capital Allowances on items which you are going to use in the
business for a prolonged period such as computers, cars and other plant and machinery.
Prolonged period in this context means for more than one year.
IMPORTANT NOTE: if you are operating on the cash basis you can only claim capital
allowances for cars (we explain this further on p.22).
Additional Notes
Awards and Bursaries
Members often ask about the tax treatment of awards and bursaries. Whether an award is
taxable or not depends on each individual case but as a general rule it will count as part of
an individual’s trading income if that individual is registered with HMRC and the award was
solicited. In this context, solicited means something you have applied for or someone has
applied for on your behalf. The general guidance on this can be found at:
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim40451
Specific guidance on Arts Council grants and bursaries can be found at:
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim50200
16
Equity Tax and NIC Guide 2019/20 – updated January 2021This is a complex area and you should seek further advice where there is doubt about how
your award should be taxed.
Clothing
Claims for costumes that are specific to work are allowable. As a general rule, a self-employed
person cannot claim for a wardrobe of everyday clothing. This was established in Mallalieu v
Drummond [1983] and consequently HMRC is likely to disallow clothing costs which could be
worn every day. However, in practice, performers incur expenditure on clothing which could
be regarded as ‘everyday’ as opposed to ‘costume’, in order that they are able to attend
auditions in character.
Many performers build up a professional wardrobe of clothing which forms part of the ‘tools
of the trade’ for use in auditions and it may be possible to claim such costs provided this
clothing is not intended for any personal use as well. Despite Mallalieu v Drummond it may
be possible to persuade an HMRC Inspector to allow a claim for such costs where clothing is
bought for business purposes and not intended to be worn as part of your everyday personal
wardrobe. If such claims are made it would be your responsibility as a self-employed taxpayer
to justify this expenditure as allowable if your tax return is checked. The guiding principle is
that the clothes were purchased for performance purposes only.
Cosmetic surgery
This is an item frequently claimed by members. In order to claim for cosmetic surgery you
would need to establish firstly a business need for the work done and secondly that you would
not have had the work done were it not for your profession. In other words, a deduction will
not be allowed unless you can disprove the existence of a private motive. So you may, for
example, need teeth straightened out because of frequent close-ups in your T.V. work. You
would need to show there is a professional reason to have your teeth straightened and that
it does not amount to a private wish. HMRC’s guidance states that if the performer is able to
show that their cosmetic surgery has been incurred solely for professional purposes then it
may be allowed – see: www.hmrc.gov.uk and enter BIM50160 in the Search Box.
Professional training
The cost of workshops or other forms of ongoing professional training are allowable if they
are designed to develop or refine skills that you already have or if you have to acquire certain
skills in connection with a particular role. This area could include things like workshops, voice
coaching, acting classes which build on existing skills.
But note that HMRC will disallow costs which they see as putting you in a position to trade
e.g. drama school fees or the cost of an MA. This can be a difficult area so seek advice if need
be.
Gym expenses
17
Equity Tax and NIC Guide 2019/20 – updated January 2021Many members seek to claim the cost of gym membership as an allowable expense but HMRC
are becoming increasingly strict about allowing this due to the fact that it is health related
and therefore not wholly and exclusively for business purposes (see www.hmrc.gov.uk and
enter BIM 37940 in the search box). It may be possible to claim in circumstances where your
performance work is highly physical and there is a strong business case to justify gym
membership e.g. circus performers, physical theatre but in general it is best to exercise
caution in this area.
Insurance
If this is taken out to cover yourself/the business then it will be allowable expenses, e.g. public
liability insurance (PLI). Note that PLI is included as part of your Equity membership. Any other
insurance that is wholly and exclusively for business purposes will be deductible.
Make-up and hairdressing
Claims for ‘grooming’ costs are also frequently claimed (hair, make-up and so on) where there
is a clear link to business purposes. Again the onus will be on the taxpayer to justify the
business purpose of such expenses. HMRC will normally allow for a proportion of these costs
although they are becoming more restrictive in what they will allow under this heading and
have amended their guidance to exclude claims for ‘grooming’ in relation to personal
appearances e.g. at film premieres. To be confident such costs will be allowable they would
need to relate to specific performance work or auditions.
Medical expenses
Medical expenditure is not generally allowable – HMRC’s view is that there will always be a
personal purpose in wishing to enjoy good health (see www.hmrc.gov.uk and enter BIM37940
in the Search Box). There may be arguments you can advance to get certain medical expenses
allowed but there has to be very strong link to work and any benefit to you as a human being
is simply an unavoidable effect. However, there are limited circumstances in which such
expenses may be allowable where it is the particular demands of the job which necessitate
the treatment e.g. where you may need regular physiotherapy due to the physical nature of
the role. In those cases you can argue that the expense is laid out wholly and exclusively for
the purposes of the trade or profession and any benefit to you as a human being is only an
unavoidable effect. However, each individual case is different and further advice should be
sought where you are seeking to include medical expenses.
Motoring expenses
There are two methods of deducting your business motoring expenses which you can choose
between:
1) Claiming an amount for each business mile using HMRC fixed mileage rates (Approved
Mileage Payment Allowances), provided certain conditions are met – these are you
must be a sole trader, must not have claimed capital allowances before for that vehicle
18
Equity Tax and NIC Guide 2019/20 – updated January 2021and only claim business mileage for that vehicle. See https://www.gov.uk/simpler-
income-tax-simplified-expenses/vehicles
HMRC’s fixed amounts to use are as follows (for 2019/2020):
• Car or van 45 pence per mile for the first 10,000 miles
25 pence per mile thereafter
• Motorcycle 24 pence per mile
Note: if you are using this flat-rate method for calculating your motoring expenses, you
cannot then claim capital allowances for cars (see page 19).
2) Claiming your actual business motoring expenses, calculated using detailed records of
business and private mileage to apportion your recorded expenditure. Motoring
expenses commonly include an amount for road tax, MOT, insurance, repairs, fuel and
roadside assistance membership.
Note: once you have started using method 1) or 2) for that vehicle you cannot then switch
it but should keep using it. If you acquire a new vehicle you can then switch the method.
Bikes
Many members use bicycles to get to and from work engagements. HMRC were allowing a 20
pence per mile fixed mileage rate for these until 2013 but this has now ceased for the self-
employed (although employees can still claim). Instead you can claim for the repairs and
maintenance of the bicycle disallowing the appropriate percentage for personal use. The cost
of purchasing the bike can be treated as an expense again with the appropriate disallowance
for personal usage.
Start-up costs
Those performers who have recently registered as self-employed may claim a reasonable and
limited amount for start-up costs for the period prior to registration up to a period of 7 years.
Start-up costs for member could include items such as subscriptions and publicity stills and
also the equipment you are intending to use in the business with a disallowance for personal
use i.e. only claim the business use percentage. For more information, see:
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46351
Travelling and subsistence expenses
You can claim expenses for travel which is incurred wholly and exclusively for business
purposes. This can include the cost of using your car, van, motorcycle or cycle for business
purposes. The sort of travel which would normally be deductible includes travel from home
to auditions, rehearsals and performance as well as research trips.
With Oyster Cards, Transport for London can issue weekly travel print outs which show each
19
Equity Tax and NIC Guide 2019/20 – updated January 2021trip enabling you to identify the ones which are business-related.
You can also claim the costs of travelling abroad to work or for auditions together with
reasonable accommodation costs.
With food and drink, HMRC’s guidance makes it clear that reasonable costs may be allowed
for subsistence and accommodation where the trade is by its nature ‘itinerant’ - go to
https://www.gov.uk/hmrc-internal-manuals/business-income-manual and put BIM37670 in
the Search Box. The legal basis for this is the Income Tax (Trading and Other Income) Act 2015,
s.57A. HMRC has recognised that performance work is often by its nature “itinerant” in this
way. Allowable expenses will include the costs of ‘overnight subsistence’ e.g. digs when
staying away from home whilst on tour.
Example
Pedro is on tour on an Equity subsidised repertory contract. He is paid a travel and
subsistence allowance under the agreement. He pays £300 per week for his digs and
spends about £100 per week on meals. He declares these amounts as part of his self-
employment income and claims the corresponding expenses on the tax return.
IMPORTANT NOTE: If you receive a travel and subsistence allowance under an Equity
contract or similar, please note that this should be declared as income on the tax return and
the corresponding expenses claimed as well. Members are sometimes told these amounts
are non-taxable which is incorrect – if in any doubt contact our Helpline.
Use of a home as an office
Many members use their home for various business purposes such as learning lines and other
performance activities, contacting agents, researching roles, browsing for castings,
bookkeeping, etc.
In general it is possible to claim a realistic and reasonable amount of the rent for using a room
or rooms in your rented home for business purposes. Costs might include a corresponding
claim for council tax, lighting, heating (gas and electricity), buildings and contents insurance,
cleaning and redecoration/repairs to the room used for business purposes.
You can calculate the amount to be claimed one of two ways:
1) Calculate the total amount of costs spent on running the home under the headings
given above. Count up the number of rooms in the house (not counting the kitchen
and bathroom) and then divide the costs by that number. Then multiply that figure by
the number of rooms used in the business. If you do not use the room exclusively for
business purposes e.g. it is used part of the time as a bedroom then you will need to
apportion between business and personal use e.g. if you only use it for business half
the time, divide the figure by two.
20
Equity Tax and NIC Guide 2019/20 – updated January 2021Example
Bernard lives in a three-bedroomed flat – he uses one of the bedrooms as an office
and an area for practising his performances skills. Without counting the kitchen
and bathroom he has a total of six rooms. The room has a desk and a PC in it. He
calculates his total monthly costs to be £1200 including rent. This total divided by
six (the number of rooms) is £200 which is then multiplied by 1 (total number of
room used for business). He therefore claims £200 per month for use of home as
business. If he only used the room half the time for business, he would claim £100.
2) Secondly, you could use the HMRC standard rates which are quite modest. These are
based on the number of hours per month you spend in the business room so you
would therefore need to calculate this based on a log. The monthly amounts are
currently:
Less than 25 hours per month £0
25-50 hours per month £10
51-100 hours per month £18
101 + hours per month £26
IMPORTANT NOTE: Once you have chosen one of these methods you need to stay with it as
it cannot be changed.
If you are using accommodation where there is no identifiable separate room used for
business purposes, e.g. you live in a studio flat or have a room in shared accommodation
which is also your bedroom, we recommend making use of the HMRC flat rates above.
It is possible to claim a proportion of mortgage interest for use of home as office but there
may be Capital Gains Tax consequences. Any part of a property used exclusively for business
purposes will not qualify for Capital Gains Tax Private Residence Relief when the property is
sold. However, if the room as office claim relates to a room that is not used exclusively for
work, Private Residence Relief should still be available for the whole property.
For further guidance on this, please see www.hmrc.gov.uk and put BIM 47800 in the Search
Box.
Capital expenditure
Capital items are items of equipment or machinery which you are intending to use in the
business for a prolonged period e.g. cars or computers. In that sense, a prolonged period
generally means more than a year.
If you are operating on an accruals basis, you can claim Capital Allowances for these items; if
21
Equity Tax and NIC Guide 2019/20 – updated January 2021you are operating on a Cash Basis, you would treat such items the same way as ordinary
expenses with the exception of cars for which you can claim Capital Allowances subject to
one condition (see below page 21-22).
The way Capital Allowances operate is that you can allow a proportion of the purchase cost
against tax either by way of the Annual Investment Allowance (AIA), which is a first year
allowance, or Writing down Allowance (WDA) in subsequent years. You can only claim the
business proportion of Capital Allowances where you use the equipment for business and
private purposes, so you will need to reduce your claim by the amount of your private use.
The AIA provides 100% tax relief on items such as phones and computers for use in the
business. In practice, for most sole traders, AIAs cover most of the assets you would use in
your business with the exception of cars. This means that the total cost can be set against tax
in the year of purchase subject to any apportionment needed to reflect business versus
personal use.
AIAs are subject to financial limits – from 1st January 2019 to 31st December 2020 this rate has
been temporarily increased to £1 million per annum. You add up the cost of all your capital
expenditure (excluding cars) and if the total amount is at the financial limit or less you can
claim 100% of it as your AIA which will reduce your taxable income.
Note: as stated, the above rules on Capital Allowances do not apply if you are using the cash
basis except in relation to cars (see below).
Cars
The type of Capital Allowance that applies to cars is called a Writing down Allowance (WDA).
For cars bought on or after 6th April 2018, the amount of this WDA will depend on your car’s
carbon dioxide (CO2) emissions. The WDAs to claim are (depending on the emission levels)
first year rate (100%), main rate (18%) or special rate (6%) as per the following table:
Description of car What you can claim
New and unused, CO2 emissions are 50g/km or less (or car is First year allowances
electric)
New and unused, CO2 emissions are between 50g/km and Main rate allowances
110g/km
Second hand, CO2 emissions are 110g/km or less (or car is electric) Main rate allowances
New or second hand, CO2 emissions are above 110g/km Special rate allowances
For information on cars bought earlier than this, see: Claim capital allowances: Business cars
- GOV.UK (www.gov.uk)
22
Equity Tax and NIC Guide 2019/20 – updated January 2021To check the C02 emission level of your vehicle go to:
http://carfueldata.direct.gov.uk/search-new-or-used-cars.aspx
Remember to reduce your WDA to reflect only the business use (you cannot claim a WDA for
the private use of your car).
Example
Emma purchases a second-hand Ford Focus in September 2019. It has CO2 emissions
of 167g/km. The purchase price is £2,500 and she can claim 6% tax relief (special rate)
on this in the first year i.e. £150. This leaves £2,350 of the cost still to be written off so
in tax year 2020-21, she can claim tax relief on 6% x £2,350 (£141).
The Small Capital Allowance Pool enables you to write off in full any items with a written
down value of less than £1,000 rather than at the normal written down allowance rate of
18%. This can be done with cars whose value has reduced to below that level.
Note: as stated on page 16, if you are using flat rate mileage allowances you cannot use
Capital Allowances to get tax relief on cars.
For more information on the Capital Allowance rules for cars, see pages 10 and 11 of the Tax
Return: Self-employment (Full) Notes. Type SA 103(F) notes into the search bar at
www.hmrc.gov.uk.
Further information on capital allowances in general can be found at
http://www.hmrc.gov.uk/manuals/camanual/ca23500.htm
HMRCs manual on Capital Allowances can be found at
www.hmrc.gov.uk/manuals/camanual/Index.htm
They have also produced a webinar on Capital Allowances at:
http://www.hmrc.gov.uk/webinars/self-employed.htm and scroll down to the sub-heading
Capital Allowances.
Trading Allowance
The government announced a new trading allowance of £1,000 effective from tax year
2017/18.
Where your trading income from all self-employments for the year (gross) amounts to £1,000
or less you will no longer have to declare or pay tax on this income. Consequently, if you are
not yet registered with HMRC you may decide not to register. However, you may still wish to
register and submit a return e.g. if you want to pay Class 2 national insurance on a voluntary
basis to maintain qualifying years for state retirement pension or to pay qualifying
contributions for other benefits such as maternity allowance. You may also want to file a
23
Equity Tax and NIC Guide 2019/20 – updated January 2021You can also read
